RE/MAX Holdings, Inc. – Fourth Quarter 2016 Page 1 of 16 RE/MAX HOLDINGS REPORTS FOURTH QUARTER AND FULL-YEAR 2016 RESULTS DENVER, February 23, 2017 Full-Year 2016 Highlights (Compared to full-year 2015 unless otherwise noted) Total agent count grew by 6.8% to 111,915 agents U.S. and Canada combined agent count increased 3.5% to 82,402 agents Revenue of $176.3 million, down 0.3%; revenue would have increased 6.9% after adjusting for the sale of the Company-owned brokerage offices Net income attributable to RE/MAX Holdings, Inc. of $22.7 million and earnings per diluted share (GAAP EPS) of $1.29 Adjusted EBITDA 1 of $94.6 million, Adjusted EBITDA margin 1 of 53.7% and Adjusted earnings per diluted share (Adjusted EPS 1 ) of $1.74 Launched the Motto Mortgage franchise in October Acquired the master franchise rights to six independent regions in the U.S. Refinanced existing credit facility in December, enhancing financial flexibility Fourth Quarter 2016 Highlights (Compared to fourth quarter 2015 unless otherwise noted) Revenue of $44.4 million, up 2.7%; revenue increased 9.1% after adjusting for the sale of the Company-owned brokerage offices Net income attributable to RE/MAX Holdings, Inc. of $3.9 million and GAAP EPS of $0.22 Adjusted EBITDA of $22.4 million, Adjusted EBITDA margin of 50.4% and Adjusted EPS of $0.41 Announced a 20% increase to the quarterly dividend on February 22, 2017 RE/MAX Holdings, Inc. (the “Company” or “RE/MAX Holdings”) (NYSE: RMAX), parent company of RE/MAX, LLC (“RE/MAX”), one of the world’s leading franchisors of real estate brokerage services, and Motto Franchising, LLC (“Motto”), an innovative mortgage brokerage franchise, today announced operating results for the fourth quarter and full year ended December 31, 2016. “RE/MAX Holdings had a landmark 2016 as we continue to successfully execute on all aspects of our strategy,” stated Dave Liniger, Chief Executive Officer and Co-Founder. “This past year, we achieved our largest annual agent gain in ten years, acquired six independent regions, launched Motto Mortgage and sold our remaining Company-owned brokerages. Our strong performance across our business delivered enhanced value to our shareholders and allowed us to increase our quarterly dividend by 20%.” 1 Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS are non-GAAP measures. These terms are defined elsewhere in this release. Please see the schedules appearing later in this release for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. 1 Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EPS are non-GAAP measures. These terms are defined elsewhere in this release. Please see the schedules appearing later in this release for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures.
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RE/MAX Holdings, Inc. – Fourth Quarter 2016 Page 1 of 16
RE/MAX HOLDINGS REPORTS
FOURTH QUARTER AND FULL-YEAR 2016 RESULTS
DENVER, February 23, 2017
Full-Year 2016 Highlights (Compared to full-year 2015 unless otherwise noted)
Total agent count grew by 6.8% to 111,915 agents
U.S. and Canada combined agent count increased 3.5% to 82,402 agents
Revenue of $176.3 million, down 0.3%; revenue would have increased 6.9% after adjusting for
the sale of the Company-owned brokerage offices
Net income attributable to RE/MAX Holdings, Inc. of $22.7 million and earnings per diluted
share (GAAP EPS) of $1.29
Adjusted EBITDA1 of $94.6 million, Adjusted EBITDA margin1 of 53.7% and Adjusted earnings
per diluted share (Adjusted EPS1) of $1.74
Launched the Motto Mortgage franchise in October
Acquired the master franchise rights to six independent regions in the U.S.
Refinanced existing credit facility in December, enhancing financial flexibility
Total 29,513 28,391 27,989 26,572 25,240 24,206 23,467 22,849 21,865
Total 111,915 111,188 109,960 106,708 104,826 103,491
101,903 99,955 98,010
Net change in agent count compared
to the prior period 727 1,228 3,252 1,882 1,335 1,588 1,948 1,945 363
(1) As of December 31, 2016, U.S. Company-owned Regions include agents in the Georgia, Kentucky/Tennessee and Southern Ohio regions, which converted from Independent Regions
to Company-owned Regions in connection with the acquisition of certain assets of RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc. and RE/MAX of Southern Ohio, Inc., collectively (“RE/MAX Regional Services”), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the states of Georgia, Kentucky and Tennessee and Southern Ohio, on December 15, 2016. As of the acquisition date, the Georgia, Kentucky/Tennessee and Southern Ohio regions had 3,963 agents. As of December 31, 2016, U.S. Company-owned Regions include agents in the New Jersey regions, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of New Jersey, Inc. (“RE/MAX of New Jersey”), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of New Jersey, on December 1, 2016. As of the acquisition date, the New Jersey region had 3,008 agents. As of each quarter end since June 30, 2016, U.S. Company-owned Regions include agents in the Alaska region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of Alaska, Inc. (“RE/MAX of Alaska”), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of Alaska, on April 1, 2016. As of the acquisition date, the Alaska region had 245 agents. In addition, as of each quarter end since March 31, 2016, U.S. Company-owned Regions include agents in the New York region, which converted from an Independent Region to a Company-owned Region in connection with the acquisition of certain assets of RE/MAX of New York, Inc. (“RE/MAX of New York”), including the regional franchise agreements issued by us permitting the sale of RE/MAX franchises in the state of New York, on February 22, 2016. As of the acquisition date, the New York region had 869 agents.
(2) As of each quarter end since March 31, 2015, Independent Regions outside of the U.S. and Canada include agents in the Caribbean and Central America regions, which converted from Company-owned Regions to Independent Regions in connection with the regional franchising agreements we entered into with new independent owners of the Caribbean and Central America regions on January 1, 2015. As of the disposition date, the Caribbean and Central America regions had 328 agents.
RE/MAX Holdings, Inc. – Fourth Quarter 2016 Page 11 of 16
TABLE 5 RE/MAX Holdings, Inc.
Adjusted EBITDA Reconciliation to Net Income
(Amounts in thousands, except percentages)
(Unaudited)
Three Months Ended December 31, Year Ended December 31,
2016 2015 2016 2015
Net income $ 8,514 $ 10,969 $ 47,810 $ 51,350
Depreciation and amortization 4,612 3,740 16,094 15,124
Interest expense 2,103 2,965 8,596 10,413
Interest income (42) (42) (160) (178)
Provision for income taxes 3,097 3,148 15,273 12,030
Loss (gain) on sale or disposition of assets and sublease (1) 4 (2,877) (171) (3,650)
(1) Represents losses (gains) on the sale or disposition of assets as well as the gains on the sublease of a portion of the Company’s corporate headquarters office building.
(2) Represents losses incurred on early extinguishment of debt on the Company’s credit facility for each full-year period presented as well as costs associated with the refinancing of the Company’s credit facility during the year ended December 31, 2016.
(3) Represents the non-cash charge to appropriately record rent expense on a straight-line basis over the term of the lease agreement taking into consideration escalation in monthly cash payments.
(4) Represents costs incurred for compliance services performed in connection with the issuance of shares of Class A common stock as a result of the RIHI, Inc. (“RIHI”) redemption of 5,175,000 common units in RMCO during the fourth quarter of 2015 (the “Secondary Offering”).
(5) Includes severance and other related expenses due to organization changes in the Company’s executive leadership.
(6) Acquisition-related expenses include fees incurred in connection with the Company’s acquisitions of certain assets of HBN, Inc. (“HBN”) and Tails, Inc. (“Tails”) in October 2013, the acquisition of six Independent Regions (New York, Alaska, New Jersey, Georgia, Kentucky/Tennessee and Southern Ohio, collectively, the (“2016 Acquired Regions”) and the acquisition of Full House Mortgage Connection, Inc., now known as Motto Mortgage (“Motto”). Costs include legal, accounting and advisory fees as well as consulting fees for integration services.
RE/MAX Holdings, Inc. – Fourth Quarter 2016 Page 12 of 16
TABLE 6
RE/MAX Holdings, Inc.
Adjusted Net Income and Adjusted Earnings per Share
(Amounts in thousands, except share and per share amounts)
(Unaudited)
Three Months Ended December 31, Year Ended December 31,
2016 2015 2016 2015
Net income $ 8,514 $ 10,969 $ 47,810 $ 51,350
Amortization of franchise agreements 4,081 3,392 14,590 13,566
Provision for income taxes 3,097 3,148 15,273 12,030
Add-backs:
Loss (gain) on sale or disposition of assets and sublease (1) 4 (2,877) (171) (3,650)
Loss on early extinguishment of debt and debt modification expense (2) 2,757 — 2,893 94
Public offering related expenses (4) — 1,097 193 1,097
Severance related expenses (5) (28) — 1,472 1,482
Acquisition related expenses (6) 1,200 2,673 1,899 2,750
Adjusted pre-tax net income 19,793 18,610 84,707 79,608
Less: Provision for income taxes at 38% (7,521) (7,072) (32,189) (30,251)
Adjusted net income (7) $ 12,272 $ 11,538 $ 52,518 $ 49,357
Total basic pro forma shares outstanding 30,207,530 30,113,276 30,188,341 29,925,446
Total diluted pro forma shares outstanding 30,265,670 30,181,348 30,237,368 30,083,609
Adjusted net income basic earnings per share (7) $ 0.41 $ 0.38 $ 1.74 $ 1.65
Adjusted net income diluted earnings per share (7) $ 0.41 $ 0.38 $ 1.74 $ 1.64
(1) Represents losses (gains) on the sale or disposition of assets as well as the gains on the sublease of a portion of the Company’s corporate headquarters office building.
(2) Represents losses incurred on early extinguishment of debt on the Company’s credit facility for each full-year period presented as well as costs associated with the refinancing of the Company’s credit facility during the year ended December 31, 2016.
(3) Represents the non-cash charge to appropriately record rent expense on a straight-line basis over the term of the lease agreement taking into consideration escalation in monthly cash payments.
(4) Represents costs incurred for compliance services performed in connection with the Secondary Offering.
(5) Includes severance and other related expenses due to organization changes in the Company’s executive leadership.
(6) Acquisition-related expenses include fees incurred in connection with the Company’s acquisitions of certain assets of HBN, Inc. and Tails, Inc. in October 2013, the 2016 Acquired Regions and the acquisition of Motto.
(7) Costs include legal, accounting and advisory fees as well as consulting fees for integration services.
(8) Non-GAAP measure. See the end of this press release for definitions of Non-GAAP measures.
RE/MAX Holdings, Inc. – Fourth Quarter 2016 Page 13 of 16
TABLE 7 RE/MAX Holdings, Inc.
Pro Forma Shares Outstanding
(Unaudited)
Three Months Ended December 31, Year Ended December 31,
Free cash flow after tax and non-dividend discretionary distributions to RIHI $ 49,593 $ 66,454
Unencumbered cash generated $ 34,785 $ 57,054
Adjusted EBITDA $ 94,647 $ 91,401
Free cash flow as % of Adjusted EBITDA 63.4% 80.8%
Free cash flow less distributions to RIHI as % of Adjusted EBITDA 52.4% 72.7%
Unencumbered cash generated as % of Adjusted EBITDA 36.8% 62.4%
(1) Non-GAAP measure. See the end of this press release for definitions of Non-GAAP measures.
RE/MAX Holdings, Inc. – Fourth Quarter 2016 Page 15 of 16
Non-GAAP Financial Measures
The SEC has adopted rules to regulate the use in filings with the SEC and in public disclosures of financial measures not in accordance with U.S. GAAP, such as Adjusted EBITDA and the ratios related thereto, Adjusted net income, Adjusted basic and diluted earnings per share (Adjusted EPS) and Free cash flow. These measures are derived on the basis of methodologies other than in accordance with U.S. GAAP.
The Company defines Adjusted EBITDA as EBITDA (consolidated net income before depreciation and amortization, interest expense, interest income and the provision for income taxes, each of which is presented in the audited consolidated financial statements included in the Annual Report on Form 10-K), adjusted for the impact of the following items that the Company does not consider representative of its ongoing operating performance: loss or gain on sale or disposition of assets and sublease, loss on early extinguishment of debt, non-cash straight-line rent expense, professional fees and certain expenses incurred in connection with the IPO and subsequent secondary offering, acquisition related expenses and severance related expenses. During the third quarter of 2014, the Company revised its definition of Adjusted EBITDA to eliminate the adjustment of equity-based compensation expense incurred for equity awards granted since the IPO, and Adjusted EBITDA in prior periods was revised to reflect this change for consistency of presentation. During the fourth quarter of 2014, the Company revised its definition of Adjusted EBITDA to include an adjustment for severance related charges incurred during or after such quarter.
Because Adjusted EBITDA omits certain non-cash items and other non-recurring cash charges or other items, the Company believes that it is less susceptible to variances that affect its operating performance resulting from depreciation, amortization and other non-cash and non-recurring cash charges or other items and is more reflective of other factors that affect its operating performance. The Company presents Adjusted EBITDA because the Company believes it is useful as a supplemental measure in evaluating the performance of the operating businesses and provides greater transparency into the Company’s results of operations. The Company’s management uses Adjusted EBITDA as a factor in evaluating the performance of the business.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider Adjusted EBITDA either in isolation or as a substitute for analyzing the Company’s results as reported under U.S. GAAP. Some of these limitations are:
this measure does not reflect changes in, or cash requirements for, the Company’s working capital needs;
this measure does not reflect the Company’s interest expense, or the cash requirements necessary to service interest or principal payments on its debt;
this measure does not reflect the Company’s income tax expense or the cash requirements to pay its taxes;
this measure does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;
this measure does not reflect the cash requirements to pay dividends to stockholders of the Company’s Class A common stock and tax and other cash distributions to its non-controlling unitholders;
this measure does not reflect the cash requirements to pay RIHI Inc. and Oberndorf pursuant to the tax receivable agreements,
RE/MAX Holdings, Inc. – Fourth Quarter 2016 Page 16 of 16
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these measures do not reflect any cash requirements for such replacements; and
other companies may calculate this measure differently so they may not be comparable.
Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of Revenue.
Adjusted net income is defined as net income plus primarily non-cash items and other items that management does not consider to be useful in assessing the Company’s operating performance (e.g., amortization of franchise agreements, gain on sale or disposition of assets and sub-lease, loss on debt extinguishment, non-cash straight-line rent expense, public offering related expenses, severance-related expenses, and acquisition-related costs).
Adjusted basic and diluted earnings per share (Adjusted EPS) are defined as Adjusted net income (as defined above) divided by pro forma basic and diluted weighted average shares, as applicable.
Free cash flow is defined as operating cash flow minus capital expenditures. Free cash flow after tax and non-dividend discretionary distributions to RIHI is defined as free cash flow minus tax and other discretionary non-dividend distributions paid to RIHI to enable RIHI to satisfy its income tax obligations. Unencumbered cash generated is defined as free cash flow after tax and non-dividend discretionary distributions to RIHI minus quarterly debt principal payments minus annual excess cash flow payment on debt, as applicable.
The Company’s Adjusted EBITDA margin guidance does not include certain charges and costs. The adjustments to EBITDA margin in future periods are generally expected to be similar to the kinds of charges and costs excluded from Adjusted EBITDA margin in prior quarters, such as gain on sale or disposition of assets and sublease and acquisition related expenses, among others. The exclusion of these charges and costs in future periods will have a significant impact on the Company’s Adjusted EBITDA margin. The Company is not able to provide a reconciliation of the Company’s non-GAAP financial guidance to the corresponding U.S. GAAP measures without unreasonable effort because of the uncertainty and variability of the nature and amount of these future charges and costs.